Cannabis company Aphria Inc. made a massive bet on international markets on Monday, agreeing to pay around $826 million for a competitor with no record of cannabis production but a number of potentially significant assets overseas.

Nuuvera Inc., the target of the friendly takeover bid, became a publicly traded entity only three weeks ago and has yet to secure a license from Health Canada to grow and sell cannabis in Canada. Through a subsidiary, however, the company has a license to import and export cannabis products and has, in recent weeks, been acquiring overseas properties and inking supply deals in countries like Germany, Italy and Spain.

The merger — which stands in contrast to Aurora Cannabis Inc.’s $1 billion-plus takeover of well-established cannabis producer CanniMed Therapeutics Inc. last week — shows the degree to which Canada’s major cannabis companies are looking for international opportunities, even as the domestic market gears up for recreational legalization this coming summer.

“The acquisitions open the door to key international markets, including Germany, Italy, Spain, the United Kingdom, Malta, Israel, Uruguay and others,” Aphria CEO Vic Neufeld said on an analyst call Monday.

In Italy alone — where Nuuvera recently acquired one of only seven import licenses by buying a Genoese company — the medical market is expected to reach $9 billion in the coming years, Neufeld said.

There are also opportunities for significantly higher margins in overseas medical markets, such as Italy, where prices are elevated by a lack of local supply.

“We’re seeing some very good arbitrage opportunities right now on the international markets, where Canadian companies can sell their production at $9 or more Canadian, versus the wholesale price here, domestically for the recreational market which will be around $4 to $5,” said an industry source.

“The Canadian domestic recreational market will be extremely competitive, and we may even run into an oversupply, so that will put pressure on pricing,” he added.

The Nuuvera deal only starts to make sense when seen through an international lens. On top of the Italian acquisition, the company has announced a deal to acquire a GMP certified lab in Spain, supply contracts with a companies in the U.K. and Uruguay, and a 1,200 kilograms supply deal with German pharmaceutical company CC Pharma GmbH.

The company likewise made it through the first round of a highly competitive tender process for German supply licenses. Buying Nuuvera gets Aphria onto the playing field with competitors like Aurora, Canopy Growth Corp., Cronos Group Inc and MedReleaf Corp., who are all vying for what is expected to be a limited number of German licenses.

“If you look at what Aphria has done so far, they’ve developed a very sizeable domestic production profile, they’ve made a couple of investments in the U.S., but their exposure internationally has been a little bit more limited than other LPs,” said the industry source. “The acquisition of Nuuvera really positions them almost at the top of the pile for global reach right now.”

Ultimately Nuuvera’s value appears to come from its access. The company is led by a team of Bay Street heavy hitters, including board members Ronald Schmeichel, former chairman of Concordia Healthcare Corp; Anthony Lacavera, founder of Wind Mobile; and CEO Lorne Abony, formerly of FUN Technologies and Mood Media. It also has a former Canadian ambassador to Israel, Vivian Bercovici, as its managing director for Europe and Israel.

“The management team … (brought) the right feet on the ground, country by country,” said Neufeld.

There’s also, perhaps, a sense that Aphria is buying back supply which it signed over to Nuuvera in recent months. Back in August, Aphria agreed to supply Nuuvera with 17,000 kilograms a year to fuel Nuuvera’s global ambitions. This month, Aphria upped that promise to 77,000 kilograms a year.

“I know it’s the elephant in the room, but this brings the retail margin that Nuuvera was otherwise going to earn, whether the Canadian recreational footprint or international, and brings it onto the Aphria income statement,” said Neufeld, referencing the supply deals his company only recently cut with Nuuvera.

Monday’s deal comes only two weeks after Aphria announced that it was buying B.C.-based Broken Coast Cannabis Inc. for $230 million.

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